This week we present a timely and important series on debt renunciation and forgiveness by longtime contributor Zeus Yiamouyiannis. Today: Part 3: Administering debt forgiveness.

As I write, "risk trade" assets are skyrocketing around the globe as central banks unleash a tsunami of liquidity. Giving bankrupt entities the ability to borrow more money does not make them solvent, and so if we look past the manic rally in speculative assets, we see that debt will still have to be renunciated, written down, forgiven, wiped off the books--whatever terminology you prefer.

Ultimately, debt forgiveness starts from the need for global social self-preservation. Succeeding generations will not or cannot continue the easy credit charade, so zeroing out debt, prosecuting fraud, and pursuing bankruptcies to those who have overextended themselves, including “too big to fail banks,” is necessary to get the monkey off the back of the global economy and future generations. This will have to be done in a way to prevent future abuse, open up opportunity, and reinforce a healthy productivity.

Again, when debt is both unsustainable and largely fraud, debt forgiveness is the last and only remedy. No other responses have come close to adequately dealing with the systemic enormity of the problem. Current conventional attempts at reform are some version of “extend and pretend” (“solving” debt with more debt) or “hide and seek” (valuating assets mark-to-fantasy and stashing liabilities off the books). Those are not solutions; they are pipe dreams.

Productivity, prosperity, and well-orchestrated debt forgiveness align up on one side, and austerity and debt expansion align on the other in this challenge. We’ve already seen the trajectory of the latter choice. It accelerates concentrations of wealth and control, damaging democratic governance, creating personal misery (as seen with upticks in those in poverty and without medical care), stirring violence and unrest, and destabilizing societies. When the wrong things are being valued and rewarded, people have the right and duty to resist, and they are resisting.

Currently present and future generations are literally and metaphorically being imprisoned through the attempted enforcement of non-enforceable and fraudulent debt. Paying off a hopeless mortgage is a form of house arrest. In this climate, debt forgiveness is based on a very clear and rational decision: Restorative justice for people currently paying off fraudulent or untenable liabilities (largely run up and foisted on them by others) is far more important than the prospect of having selected opportunists “taking advantage of the system” to discharge valid debts.

The system is far more broken than the people in it, and if reformed with canny foresight and wisdom, can actually reward those willing to produce and insist upon other forms of pro-social volunteer effort as “payment” for those who do not have money. This is called picking up the pieces and working in good faith.

Arguments for and against debt forgiveness: Facts and falsehoods

When confronted with the option of debt forgiveness, many citizens argue that loans are some kind of sacred cow and that debt forgiveness would reward irresponsibility. Their simplistic truisms usually ignore context and inevitably focus on the moral or contractual obligations of low-level operators and borrowers (“You signed it; you have to pay it off no matter what.”). The context and truth is this: Massive debts have been run up in our global financial system at all levels, the most egregious by those with the most power, and by those enriching themselves by extracting ever greater pounds of flesh from tax payers and borrowers.

So let’s get dispense some truth to challenge the myths:

The biggest thieves, the most immoral, criminal, and irresponsible debt players by far have been those who have been enriched the most from our current debt system. Look no further than “too big to fail banks” who profited enormously from fraud in the lead-up to financial meltdown, blew up the system in 2008, got bailed out with tax payer money, and then promptly rewarded themselves with 144 billion dollars in bonuses a year later. Mom and pop underwater mortgage holders are not the problem.

Even if a borrower takes out a loan that he or she can comfortably afford and saves up a six-month emergency fund, that borrower can get behind through illness or job loss or other unanticipated event. For larger borrowing economies these events could be peak oil or global warming or any number of strains that are not accounted for and that significantly interrupt or alter growth trajectories.

Add to this modern finance where money-to-debt ratio is widening through fractional reserve banking and complex leveraging, and we can note that only a small fraction of total debt could physically be paid off. That means morally- and practically-objectionable debt slavery for the vast majority of loan holders, as their productive efforts go into paying off interest to faceless institutions rather than investing in families and communities.

As mentioned earlier: 1) Debt that cannot be paid is already default. By this measure many countries (Greece, Italy, Spain, U.S.) are already in default. Pretending otherwise (through austerity measures, etc.) will simply stress the body politic to the breaking point and beyond. 2) Current debt is unenforceable because people do not have the money, jobs, or assets to pay them due to unprecedented global economic contraction. 3) There is so much fraud and counterfeit value in the current system (700 – 1,000 trillion in derivatives alone), that current real assets cannot cover liabilities. 4) Government welfare promises/entitlements in most countries, due to a post-WWII population bubble, far outstrip the capacity of future generations to deliver on them.

By laboring under a “debt as natural/moral law” delusion, world economies are trying to essentially drain the sea of international debt by bailing the sea into the boats of national economies and on to the backs of productive citizens. This approach is not working; that sea of international debt is growing beyond control due to its colossal size coupled with compound interest. We know that national austerity cannot come close to solving this predicament, so why are we pretending? The truth is we, the regular citizens, are not pretending. We have to live the reality of increasing debt and diminished material opportunity. It is powerful leaders and the financially rich and influential who have covered their eyes to distance themselves from the consequences of their own collapsed designs.

This peek-a-boo approach of current world leaders will only delay the day of reckoning and thus to make the economic and political consequences worse. Their approach is a recipe for violent revolt, economic freeze-up, panic, shortages of vital goods, and ironically their own endangerment. Ordered deleveraging will not be sufficient at this point, since levered value has already illegally been converted into counterfeit “actual” value by an unregulated shadow banking system: This counterfeit “notional” value not only swamps people’s ability to pay, but might even eclipse the value of all real assets in the world (unless, of course, you mark those to fantasy as well).

Even a egomaniacal two-year-old will grudgingly admit that there are no more cookies in the jar once he as eaten them all. This is far better than adult bankers who decided to make up imaginary “cookies” to dispense from that same jar (based on leverage or fractional reserve), and then expect people to hand them back real cookies (money, labor, and assets) in exchange for these concocted cookies. When we support debt forgiveness we are left with a zeroed scale, and therefore any “cookie” added will be from our own creativity, effort, and good sense. That is a far better place to be than less-than-zero where our efforts go to resupply imaginary value.

The system is not unsustainable; it is already broken, and needs to be put on a path of real, concrete productivity and growth (labor, learning, creative application, quality of life, etc.), not malignant expansion of credit and debt. My argument is that debt forgiveness is an essential mover in this necessary transformation. Debt in its current ideological form, must be decisively repudiated in practice and replaced with a working system based on healthy, productive principles.

This process of repudiation includes extinguishing delusional economic assumptions and practices—the parasitic “skim-scam” of “internalizing gains and externalizing liabilities” in an inherently interconnected system, and the addictive habit of leeching off the future. Transformation involves “paying forward” our talents and investment in the growth of a stronger, safer, and more solvent future. This will be discussed in the next part.

(by Zeus Yiamouyiannis, Ph.D., copyright 2011)

About this series: Given accelerating conditions and trends in Europe, the U.S. and Asia, debt will be renounced, forgiven or written down, and how that process unfolds is now of paramount importance. Will private entities who dined so gloriously on their profits now eat their losses? Can the public who has seen its fortunes commandeered mount an effective response? Will there be convincing practical alternatives to a rigged world economy based in debt expansion and servitude? The answer is "yes" to all three, contends this five-part series by longtime contributor Zeus Yiamouyiannis. The series offers practical analyses and blueprints for liberating the world from debt and thus freeing its people to pursue greater, more productive purposes. CHSUnleashing the Future: Advancing Prosperity Through Debt Forgiveness (Part 1) (November 28, 2011)Unleashing the Future: Advancing Prosperity Through Debt Forgiveness (Part 2) (November 29, 2011)

I'm not convinced that you read the article. There are more debts than real assets, probably; the whole globe is under water and in hock to the bankers - your outlook would insure their system continues, with other characters at the helm.

In 1913 the US dollar had about $2 in purchasing power, relative to 1796. The low point in the period between those years was 93 cents in purchasing power.

In 2011, depending on who you listen to, the dollar has 2-4 cents in purchasing power. At one time, not long ago, the dollar was literally as good as gold. Now Bernanke says there's not enough gold in the world to back all the dollars in existence. At one time, the US alone held enough gold to back all the dollars.

So after creating all of this paper and diluting our saving and purchasing power at every step, now we reward the banksters by making good on all of the debts they've ginned up? It's akin to a company issuing stock constantlly, at consistently lower prices. Who would choose to buy the stock, if they knew what was coming? We've put our stock in the dollar, its minders have abused it, and us, and now we're slaves to their system. Remember that only fiat money can allow for government (and personal) borrowing on anything like the scale we've seen. That in turn allows for the welfare and warfare state. It's all tied to the money. Vietnam and the great society finally pushed us off the gold standard in 1971. Anti-constitutional efforts destroyed consitutional money, as should have been expected/was planned.

What can we do to insure that fiat continues? We can treat the debt that it's based on as sacred.

I'm not comfortable with the idea of forgiving legitimate debt. But if it's that - a one time painful and in many cases grossly unfair adjustment - or continued intergenerational enslavement (morally repulsive), I will take debt forgiveness.

If you don't like that analysis, either tell me why you like the fiat money system, or tell me another approach to ending it that might actually work. To me, it's more about killing fiat and ending the idea that governments can enslave future generations than it is about rewarding or defending any borrowers. They're just along on the big ride, where fiat = govt. borrowing = millions of dependents and a warfare state = tax slaves = police state = rule by demagogues = enslaved descendents. That has to end.

You're right, it would stink to be left holding unserviced debt. But is that better or worse than every succeeding generation being enslaved by unserviced debt - our 'collective' unserviced debt? We aren't servicing our debts now, absent money printing. So we fail to pay our own way now, and even that is at the expense of our descendents, through debasing money. The west is a giant welfare case. We're getting fat and happy while we pimp our kids out to the banksters. The system is degrading, larcenous, and ultimately murderous. Whatever/whoever props it up is a disgrace and an enemy of free humanity.

You keep bringing up unserviceable debt, but default (through bankruptcy) clears out unserviceable debt as well as forgiveness and has negative consequences for those who consumed more than they could produce. Why do you feel that should not happen?

I have a slightly different view of those people who are in over their heads. Some are purely irresponsible, and the credit system is supposed to deny those people credit, so it's either broken or a tool for socializing irresponsibility. The rest were rational people who were offered a deal too good to refuse, akin to entrapment. Yes, their ranks are filled with gluttons and self-justifiers, but for the most part they are working people (if not, again, sign of systemic fraud/rot that they got credit) and were told by TPTB that they were crazy not to refinance their house at these rates, that high rates of home ownership were a matter of national pride, etc. All BS to soak up the fiat into another bubble. Trillions later, who got the real bonuses, and who is left holding the bag and depreciating property?

Yes any widespread default will in some cases be unfair. But that's not a reason to accept and excuse and prop up much greater levels of unfairness, which affect all people in all places, every day of their lives. I'll take some in-your-face unfairness (irresponsible working people getting something for little or nothing) in exchange for ending the ongoing looting and leeching at all levels.

RE default, that will happen, but selectively, and it will all be tailored around sustaining the existing fiat money system, or ushering in a copycat dressed up to look like something better. To end that, you have to end the government's ability to borrow.

Where would Greece be today if it's previous four (three?) defaults had ended its ability to borrow? They would have found a way to make things work. Now they're signing over their country and their labor to bankers.

Work within the system and you are simply massaging and minor-reparing it, doing the bankers' work for them, saving their creature. Kill it by neutering it.

People may not like it, but here's the essential truth: proclaiming that all debts must be paid or selectively defaulted on is proclaiming that the fiat system must be maintained. (It relies on its creditors to maintain it because they're trapped in it, it's brilliant, and we'd better kill it before it kills us, family by family, community by community, nation by nation.)

In 2011, depending on who you listen to, the dollar has 2-4 cents in purchasing power. At one time, not long ago, the dollar was literally as good as gold. Now Bernanke says there's not enough gold in the world to back all the dollars in existence. At one time, the US alone held enough gold to back all the dollars.

This is a nonsensical concept. Of course there is enough gold to "back" all of the dollars in existence. There's enough to cover any imaginable number of dollars.

It just can't cover them at the current price of gold in dollars. That means that the price is wrong, not that there is "not enough gold". Take the amount of dollars you want to "back", whatever it happens to be, divide it by the amount of gold that you are offering as the declared redemptive backing for each of those dollars, and you have the correct price for gold denominated in dollars (or to be more realistic, you've established the proper value of a dollar denominated in gold, which is what a backed currency actually is). Then stop making more dollars (unless you add the corresponding amount of backing gold to reserves), and your price ratio remains fixed.

Of course, that means you have to stop cheating, and none of the power brokers want that. Where's the fun?

Amen! If just one of those bank executives were put in Federal "pound me in the ass" prison, a lot of the excess risk taking would go away.

Debt forgiveness? That sounds like a gift. The last time I checked, the only way to have a debt forgiven is if the owner of the debt agrees or if the debtor files for bankruptcy...and what's wrong with that?

The central banks are in the process of socializing all the excess debt in the world. They print money and unless you have all your paper money tied up in hard assets, you pay the "debt tax". This applies to any cash you might receive (salary, pension, unemployment check, etc.)

The great thing about default is that it eliminates that amount of debt from the global total... Why forgive when default takes care of the problem? and, Forgiveness will be the mother of all inflationary events, harming savers even more than they are already harmed. Bring the defaults, let banks and bond investors take their lumps, and let's move on....wtihout all the poetry and liberal, squishy, "solutions".

Bring on the defaults, problem solved. As to the little old lady, how well armed or connected is she? That will be the only thing that matters when the state comes for her and the property as the greed grows larger and larger.

Crash, do you know people I don't? My Grandmother owned stocks prior to the Great Depression, paused buying for 30 years until 1963 but she never bought bonds.

In any event I didn't think ZIRP and other low interest monetary policy was kind to savers. I was having a hard time determining if you were serious or your commentary was sarcasm.

Greenspan knew all about the demographic imbalance. Old people hoard to prepare for decrepency. Using a banking solution to solve a demographic imbalance was not practical to begin with. Beyond that discouraging savings means government spending balloons for basic services such as healthcare, fueling massive inflation in this sector.

The older folks are chewing up the younger folks seed corn at the behest of Alan Greenspan, Ben Bernanke and associated political CFR actors.

Sounds like I should max out all credit cards and take out as many loans as possible and buy all of the toys, other junk I don't need in hopes that maybe I will be rewarded with a giant Jubilee write-off. Moral hazard anyone?

Look, city-states and nation-states -- hell, even tribal states -- have gotten overextended since the dawn of humanity. Eventually, the bill comes due.

In "less civilized" times, the debtor's tab was resolved by war and attempted seizure of adjoining riches. In today's "civilized" time, the effort is to find a more universally agreeable way to resolve the debt overhang.

So, what we're seeing now is simply a polite global game of "pass the exploding cigar." Bankers are trying (successfully, so far) to pass the cigar to governments, and politicians are trying to pass the cigar to other sovereign nations. Along the way, players occasionally find a creative way to postpone the explosion.

OK well jail all the banksters, fumigate Wash DC, THEN we can talk about 'forgiving debt' although I have no idea how that would end up being fair at all...not until the bankers and politicians are jailed though.

WTF kind of name is 'Zeus' anyway? What did your mom have hooves or what?

The debt will not be defaulted. That is what happens when gold is money. When there is only paper money the debts will be repaid with fiat that will buy a whole lot less.

The plan is financial repression the same one they used in the 70's & 80's but to a larger extent this time. 7% inflation over a 10 year period will cut the debt in 1/2 and it will be paid for by savers in a loss of purchasing power.

I dont see it that way, there will be no 10 year period of creeping inflation to cut the debt...this has been designed to cause a giant sudden implosion soon to bring in the 'emergency' 1 world bank, 1 world currency, 1 govt...the FED 100 year charter is over, as well as Bretton Woods treaty, all planned this way.

Is the world far too complex, as you suggest, or just beyond your personal comprehension? There are more than a few 100+ year conspiracies which have not only succeeded, they've created the debt slavery we're in right now. Insanity is doing the same thing and expecting different results... but then what does one call it when the same thing is done with the same destructive results for 100+ years? successful conspiracy.

One-world government is the stupidest conspiracy theory of them all. Who gets to run this one world government? Someone from China, Russia, India, France, Germany, Brazil, Israel, Iran? A council of one person from each? Oh, wait, we tried that with the U.N., which everyone just ignores. How did the early test case of the one-world government, the Soviet Union, manage things? How does the one-world government divvy up the world's wealth and assets? Equally? We're all just going to be happy sharing equally living like Bangladeshian peasants? Just stop with the one-world government conspiracy theory already.

Then, when a given region gets restive, they are enemies not just of their government or countrymen, but 'all humanity'. And they won't square off against their neighbors, it will be foreign troops who share little in common with them, and are armed with the most advanced weapons.

Virtually all governments in history have eventually tried to accumulate all power that was potentially within their reach. Our age is rife with sheisters, manipulators, and control freaks, and they gravitate to the well of power: government. We give it our power, and our _assent_ will eventually find us as members of what is effectively one world-wide state. Count on it.

SPEAKING OF RACKING UP DEBT (for the first time in my life) zerohedgers: I need recommendations of places to buy (preferably at least 22kt) gold jewelry (as a hedge for confiscation of bullion) any experience with goldpalace.com?